Thailand Country Brief - March 2009
Political overview
Recent Political Developments in Thailand
Following a military coup in September 2006, Thailand returned to a democratically-elected government when Prime Minister Samak Sundaravej's Cabinet was sworn-in on 6 February 2008. This followed national elections held on 23 December 2007.
On 9 September 2008, the Thai Constitutional Court found Mr Samak guilty of conflict of interest forcing his resignation. Mr Somchai Wongsawat was subsequently elected prime minister by the Thai Parliament.
On 2 December 2008, the Thai Constitutional Court ruled that the ruling People's Power Party be dissolved and its 37 executive members be banned from politics for five years. In making its decision the Court also ruled that Mr Somchai would no longer be able to hold his position.
Mr Abhisit Vejjajiva, leader of Thailand’s Democrat Party, was nominated as prime minister by the Thai parliament on 15 December 2008. Mr Abhisit’s Cabinet was sworn-in by His Majesty King Bhumibol Adulyadej on 22 December 2008. Mr Abhisit is Thailand’s 27th prime minister.
The Monarchy
His Majesty King Bhumibol Adulyadej is deeply respected by the Thai people. He is the world's longest reigning monarch and celebrated the 60th anniversary of his accession on 9 June 2006.
Thailand's Foreign Policy
Thailand attaches primacy to its immediate region, notably mainland South-East Asia and ASEAN, in the formulation of its foreign policy. Beyond this, Thailand accords importance to its relations with the United States, China and Japan, as well as the Republic of Korea, India and the EU. Thailand has placed increasing emphasis on its regional dialogue with Japan, China and the Republic of Korea in recent years. Thailand has been a member of the Non-Aligned Movement (NAM) since 1993.
Thailand's major security preoccupation has traditionally been with its borders and the internal situations in its neighbours, Cambodia, Burma, Laos and Malaysia. The Thai Government has had difficulties in engaging the Burmese on bilateral issues. Contentious issues include the trafficking of narcotics and the presence in Thailand of an estimated one million Burmese workers, many of them illegal, and over 130,000 displaced Burmese.
Thailand has bilateral security and commercial agreements and a long-standing defence relationship with the United States. The United States is Thailand's largest trading partner, although Japan is the single largest investor in Thailand.
Thailand has a One China policy, as well as strong trade, investment and labour links with Taiwan. Thailand has substantial and growing economic links with southern China, including significant investment.
Thailand has supported an open international trading environment through membership of the WTO, and joined, as a founding member, both the Cairns Group of 19 agricultural fair trading nations and APEC. Thailand hosted APEC in 2003 and began an 18 month term as chair of ASEAN in July 2008.
Economic overview
Thailand's real GDP growth in 2008 was 2.6 per cent, falling below previous Thai Ministry of Finance growth estimates due to the emerging global economic crisis. Thailand’s export sector, which accounts for around 60 per cent of its GDP, suffered due to falling global demand – a trend that may continue into 2009. In the first quarter of 2009, total exports declined by 23.1 per cent year-on-year, which contributed to a 7.1% contraction in GDP. Headline inflation in January 2009 was -0.4%.
The Thai government has adopted a two-stage fiscal stimulus response to address the effects of the crisis. The first phase, introduced in February 2009, was aimed at stimulating domestic purchasing power through cash handouts. The second phase, worth around $57 billion, will be released over the 2010-12 period for a range of large scale infrastructure projects.
Bilateral relationship
Australia and Thailand have longstanding and deep connections, cooperating in a broad range of areas of mutual interest, including trade and investment, law enforcement, counter-terrorism, education, security, migration and tourism. Formal diplomatic relations were established between Australia and Thailand in 1952. The bilateral relationship is facilitated by mutual membership of bodies such as APEC, the ASEAN PMC, the EAS and the Cairns Group.
links to the Thai Royal Family. His Majesty King Bhumibol Aduljadej visited Australia in 1962 and the Thai Crown Prince, His Royal Highness Maha Vajiralongkorn, studied at secondary school and military college in Australia, subsequently completing training with the Australian Army's Special Air Service Regiment in Perth.
Our strong bilateral relations are reflected in ever increasing people-to people links. Australia continues to be a leading destination for Thai students, while Thailand attracts large numbers of Australians for tourism and business. Prior to Thailand's decision in 2003 to decline development assistance Australia was a major aid partner. Many Thais studied in Australia under the Colombo Plan and other programs.
The Thailand-Australia Free Trade Agreement (TAFTA) entered into force on 1 January 2005. TAFTA has facilitated increased two-way trade and investment, improved business mobility, strengthened transparency, encouraged international best practice, and promoted bilateral cooperation in a range of areas including customs procedures, government procurement, competition policy and intellectual property protection.
A treaty-level Agreement on Bilateral Cooperation entered into force on 27 July 2005. It complements TAFTA by providing a framework for future bilateral cooperation in non-trade areas, including security and law enforcement, environment and heritage, science and technology, telecommunications, civil aviation, public administration, energy, immigration, education, culture and social development. In addition, a Memorandum of Understanding (MOU) on ‘Work and Holiday' Visas allows nationals of both countries to undertake 12-month working holidays in the other country. The inaugural meeting of the Joint Commission on Bilateral Cooperation, as established under the Agreement on Bilateral Cooperation, was convened by the Australian Minister for Foreign Affairs, the Hon Stephen Smith, MP and Thai Minister for Foreign Affairs, HE Mr Kasit Piromnya, on 8 May 2009 in Perth.
Australia and Thailand are parties to the recently concluded negotiations on the ASEAN-Australia-New Zealand Free Trade Agreement. The Agreement was signed in Hua Hin, Thailand, on 27 February 2009.
Security and Counter-terrorism Cooperation
Regional stability is a key area of mutual interest and the two countries undertake regular high-level dialogues on regional security. Thailand was one of the first countries with which Australia concluded a bilateral MOU on Counter-Terrorism in October 2002. This was followed by MOUs on police cooperation (June 2003), mutual assistance in customs matters (December 2003), and money-laundering (June 2004), and a Mutual Legal Assistance Treaty (July 2006). Thailand is also a key player with Australia in efforts to strengthen regional cooperation against people smuggling and trafficking and has extradited accused people smugglers to stand trial in Australia in recent years.
Cooperation in Multilateral Forums
Both countries are committed to carrying forward the Doha Round in the WTO and are active members of the Cairns Group, which promotes agricultural trade liberalisation. Australia and Thailand cooperated closely on the successful WTO challenge to EU subsidies on sugar exports. In APEC, Australia and Thailand work closely to further initiatives to promote free trade and investment within the region.
Development Assistance
In November 2003, the Royal Thai Government expressed its wish to transition from being an aid recipient to being an aid donor. Australia continues to provide limited support to Thailand as part of efforts to strengthen the capacity of regional organisations such as ASEAN and APEC. Thailand also participates in Australia’s efforts to improve regional responses to shared transboundary challenges such as people trafficking, pandemic preparedness and emerging infectious diseases.
In May 2009, the Minister for Foreign Affairs, the Hon Stephen Smith, MP, approved an assistance package of $1 million to assist in improving education in southern Thailand.
Bilateral economic and trade relationship
The Thailand-Australia Free Trade Agreement
Thailand has for some years been an important and expanding market for Australian export of Australian goods and services, but economic linkages have been hampered in the past by trade restrictions and barriers.
The Thailand-Australia Free Trade Agreement (TAFTA), entered into force on 1 January 2005. It ensures greater access for Australian products and has improved prospects for services trade and investment.
TAFTA is Thailand's first comprehensive free trade agreement with a developed economy and Australia's fourth free trade agreement (after New Zealand, Singapore and the United States) and second with an ASEAN member. It is also the first FTA between a developed and developing country in South-East Asia and sets a benchmark for future trade liberalisation in the region.
TAFTA is a major market opening agreement. It will lead to the complete elimination of Thailand's significant tariffs across all sectors (in some cases as high as 200 per cent) and substantially improve the environment for services trade and investment. It also encourages improvements in the regulatory environment in Thailand and promotes increased business mobility.
On entry into force, more than half of Thailand's 5,000 tariffs – accounting for nearly 80 per cent of Australian exports – were eliminated. Tariffs not immediately eliminated will be phased down and 95 per cent of all current trade between Australia and Thailand will be completely free by 2010. Longer phase-out periods and special quota arrangements will apply to a number of agricultural goods. Importantly, the tariff preferences contained in the Agreement are only available to Australian exporters and therefore give them an important advantage over their competitors in the increasingly sophisticated Thai market. Many Australian companies formerly locked out of that market by high tariffs and quotas now enjoy new opportunities, particularly in areas such as agriculture, processed foods and beverages and automotive products.
As Australia already grants tariff-free access to many products from Thailand, Australia's tariff commitments in the Agreement are more modest than Thailand's. Of particular note, Australia has granted improved access for imports of automotive products, textiles, clothing and footwear, steel and plastics and chemicals, subject to various tariff phasing arrangements. These phasing arrangements were developed in all cases following extensive consultations with relevant Australian industry groups.
Over the longer term, dynamic gains from TAFTA promise to yield even larger benefits to the Australian economy. The Centre for International Economics has estimated that TAFTA will boost Australia's GDP by over $US2.4 billion in the first twenty years of its operation. Apart from the direct economic benefits, implementation of TAFTA will also enhance Australia's broader trade, economic and security interests in the region. A substantive and comprehensive FTA between the two countries signals strong support for multilateral, regional and bilateral trade and economic liberalisation initiatives and encourages strength and stability in the region.
There are also significant improvements in access for Australian services exporters and investors in the Thai market. Thailand has relaxed a number of its restrictive conditions relating to visas and work permits for Australian business people and has guaranteed non-discriminatory treatment of Australian investments in Thailand. Thailand's minority foreign equity limits have also been lifted in a number of sectors – including mining, distribution, construction, management consulting, major restaurants and hotels, science and technology institutions, and maritime cargo.
TAFTA also includes mechanisms aimed at promoting cooperation, transparency and international best practice in a wide range of areas such as intellectual property rights, competition policy, e-commerce, quarantine standards and industrial standards.
A Strong Beginning
Since entering into force on 1 January 2005, TAFTA implementation has been proceeding smoothly. More than 870 Australian companies have been registered as active exporters under TAFTA and more than 14,000 certificates of origin for shipments to Thailand have been issued.
Bilateral Trade and Investment
TAFTA has provided the bilateral trade relationship with a significant boost. In 2008 two-way merchandise trade was worth more than $15.5 billion (up from $6.8 billion in 2004, the year before TAFTA came into force). Despite an overall dip in merchandise trade in the first half of 2009 (down 27 per cent) due to deleterious effects of the global financial crisis, TAFTA’s preferential treatment has continued to help spur growth for emerging Australian merchandise exports. Fruits and nuts (up 52.9 per cent), pet food (up 83.7 per cent), pharmaceuticals (up 14 per cent) and wine (up 10.3 per cent) exports to Thailand increased substantially in the first half of 2009, defying the downward global trend. Australia's main merchandise exports to Thailand are gold, crude petroleum, aluminium, copper, iron and steel.. Thailand's key exports to Australia are motor vehicles (light commercial and passenger), gold and heating and cooling equipment.
In 2008, Australia's services exports to Thailand totalled $965 million, while services imports totalled $1.8 billion, making Thailand our 9th largest services trade partner and 13th largest services export market. Education and transport are Australia's most important service exports to Thailand. Australia is one of the most popular destinations for Thais studying abroad, with about one third doing so in Australia – Australia registered over 22,000 Thai student enrolments in 2008. Our main services imports from Thailand are recreational travel services and transport, including shipping. Thailand is currently examining the potential to increase services trade with Australia in health-related services, including alternative medicine therapy, education services, and exports of construction and related professional services. It is also emerging as a regional hub for infrastructure, transport, medicine and education.
Two-way investment flows are relatively low by regional standards but have grown overall since TAFTA’s entry into force. At the end of 2008, Thai investment in Australia was $499 million, an increase of 48.5 per cent on 2007, while Australian investment in Thailand totalled $1,137 million, down 17.3 per cent on 2007. Foreign equity restrictions, red tape and language barriers contribute to the relatively low level of Australian investment in Thailand, although we expect TAFTA to substantially improve the environment for bilateral investment.
Export Opportunities
Thailand's high tariff peaks have compelled Australian producers to export at the low value-added end of the production chain. Removal of Thailand's tariff peaks will give Australia the opportunity to export higher-value-added goods and reduce our traditional reliance on exports of raw material and energy.
Automotive Parts and Manufacturing
TAFTA is expected to generate tangible benefits for Australia's automotive industry. Thailand has removed its 80 per cent tariff on large passenger motor vehicles and is phasing down its high tariffs on other automotive products. This should translate into significant new export opportunities in an automotive market that is similar in size to Australia's and an auto sector that has been called the ‘Detroit of Asia'.
Processed Food
Thailand's high tariffs on many processed food products have been a major impediment to the expansion of Australia's exports. TAFTA will open new opportunities for a variety of food products.
Trade Successes
Manufacturing exporters, like auto-components maker Dobinsons Spring and Suspension Companies from Rockhampton, Women's surf-wear maker Aztec Rose from Western Sydney, NSW, or kitchen-appliance maker Think Appliances from Thomastown in Melbourne, are all companies that have made recent inroads into the Thai market. According to David Gilbert of Think Appliances: “Kitchen appliance makers from Europe are paying a 16 per cent duty, but thanks to tariff reductions in the new agreement, we pay anywhere between 0 and 15 per cent. In the next few years, all our products will enter Thailand duty free,” he says.
Updated September 2009